Growing Out Of The Owner-Operator Role

BY Becky Mollenkamp

When James Thompson took over A-1 Building Services from his mother in 1994, the Wyoming, Mich., business had just one full-time employee and three part timers. His mother did everything from cleaning to billing. Thompson had a different plan. Under his charge the company now has 64 employees and retail, residential and commercial divisions.

“I knew right from the start that we were setting up a multimillion dollar organization,” Thompson says. “Right off the bat, I set the company up to be a large organization. Of course you don’t have the staff in the beginning to do that. You wear five or six hats and do everything.”

There comes a time when most independent building service contractors are faced with the challenge of growing their business beyond what they can do alone. The risks of making the leap from owner-operator of a one-person outfit to CEO of a multimillion-dollar operation are as great as the rewards.

“This is a really crucial decision in the life of a building service contractor,” says John Walker, owner of ManageMen consulting services in Salt Lake City. “I’ve seen more people go bankrupt at this point than at any other time.”

Before making the next step with your company, be certain it is the right move for you and then get prepared for potential obstacles.

Time to grow
For a BSC, signs of growth are clear: “You’re making the money of two people but you are working the hours of two people,” Walker says. No matter how much time you put in, you must turn down jobs. You move out of your basement and into an office. You may even hire someone to answer your phones or handling billing.

When you reach this point, you have a choice—maintain a profitable but stagnant business or reach for the stars.

“There are two points of view,” says Lynn Krafft, owner of Krafft Cleaning Service in Watertown, N.Y. “One is you build an empire. Then there are people like myself who just need to eat. You have to make a determination of how much time you want to spend on the business. I would advise people to not sacrifice everything in their lives for the sake of a business.”

Krafft’s company has 30 employees and makes about a half-million a year. “I’d rather be smaller and controlled,” he says. “We’re still probably in the top 5 percent but it’s not Fortune 500. And it doesn’t need to be.”

Walker has witnessed many BSCs lose everything when they attempted to grow their business. Every cleaning business cannot be a Fortune 500 company, he says. Be honest with yourself about your goals and your tolerance of risk.

“I think it’s smart a lot of times to have a solid business you can own and control,” Walker says. “You can probably have a nice business for a long, long time. The question anyone should ask is, ‘Why do I want to grow and how much to I want to grow?’ If you are making a good living and it’s manageable, do you want to put all that on the table and roll the dice?”

Slow and steady
You’ve reached the tipping point where you can no longer do it all the work yourself and you’ve decided the risks of growing are worth the rewards. Now what?

“There’s no formula for doing this right. In fact, there’s a lot of ways to do it wrong,” Walker says. “Most of the businesses I’ve seen get through this got burned a few times before it worked out. I don’t know anybody who does this the easy way.”

Increase your chances of a smooth transition by learning from some common mistakes BSCs make during this time.

For example, growing a business requires some expensive additions, such as new equipment and employees. Patience is a virtue; wait to grow until you have sufficient cash flow and cash reserves to cover increased expenses and payroll.

“When I first started bringing on people, I looked closely to be sure I afford to pay these people and still eat myself,” Krafft says. “That’s what kills businesses—they don’t have cash flow. They have cash flow, but there’s more flowing out than coming in. The biggest trap when you are growing is that desire to spend what you are actually taking in.”

On the other hand, there can be a problem with waiting too long. If growth is in your company’s future, plan for it before your age forces the issue. There will come a time when you no longer have the stamina or strength to work 12 hours on a floor job.

After 30 years in the business, Krafft saw the writing on the wall and began putting people and systems in place to be sure his company would thrive even after he could no longer do it all.

“You reach a point in your growth where you realize as much fun as it may be cleaning buildings, you can still see the time when it is not going to be that way,” Krafft says. “Unless you want to drop everything and go to a retirement home, you must make provisions.”

Krafft, 62, is still very involved in the business, but he can now take vacations and leave the day-to-day operations to his staff.

“I’m freer,” Krafft says. “When you are doing everything yourself, you are there all the time. If my wife and I want to go on a cruise, I just tell them I’m doing it.”

Craft a plan
Thompson says the key to his success was a well-laid plan. Before doing anything, he set a goal for the company and then mapped out a path to reach it. This helped him fully understand what type of business he wanted to run and what he needed to do to achieve it.

“Controlled growth is important,” he says. “Don’t just take a customer to get a customer. Find the right fit for your company. It’s real important for owners to have a business plan looking ahead. Schedule how you want your business to grow.”

If you want to run a family business, start early on with succession planning. Problems can arise when there are multiple children or when parents make assumptions about their children’s interest in the business. Make a plan and make sure everyone involved agrees.

“Ninety percent of businesses don’t make it to the next generation,” Walker says. “That’s a big bunch of odds against you.”

Find good help
You need help if you want to grow your business, especially if you don’t have the luxury of having family members involved. The industry’s high turnover rate makes it difficult to find cleaning crews. The bigger problem, however, may be hiring trustworthy managers.

“The cleaning is relatively easy to train, it’s when you need more management that it can be difficult,” Walker says. “What I’ve seen more times than I care to think about is totally misjudging someone you bring in. You think they are going to work and care like you do and a lot of times it does not work out that way. Be skeptical and cautions about who you bring in.”

Let go
Once you hire a good person, Thompson says it is crucial to trust them (at least until proven that you can’t).

“A lot of owners or managers like authority and they want to keep it all for themselves. They have a hard time letting go. They let go of responsibility but not authority. They never give up the whole apple,” Thompson says. “It took some time to get complete trust in my management staff. When I finally cut the strings and let them do it, I was amazed by how well it worked.”

To be successful as a larger company, you have to shed some of your responsibilities. You simply can’t do it all. Decide what tasks you will own and what you will delegate to others. Start by assessing your strengths and weaknesses. Be brutally honest. Ask employees, friends, or relatives for input. It’s also important to consider what tasks you do and don’t enjoy.

“If I had a litmus test of what to farm out, I would try to farm out the things that you hate and the things that you are lousy at,” Walker says.

Like most BSCs, Thompson started by doing everything, including cleaning buildings. Over the years, he reduced his involvement in day-to-day operations to focus on administrative and marketing tasks. He now serves on various boards, develops and maintains accounts, and builds the company’s image and brand. He also finds time to interview every new employee and do periodic checks of his employees’ work.

“At least once a year, I sit down and evaluate my key people and myself. I’ve seen that I should have turned things over sooner to other people because they would have done a better job,” Thompson says. “You can’t do everything and do it well.”

Becky Mollenkamp is a business writer in Des Moines, Iowa, and a frequent contributor to Contracting Profits.